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March 22, 2013

A Growing Firm’s Challenge: Limiting HR’s Reach

Over the years, I’ve written about solutions for many of the challenges that advisory firms face as they grow larger. By far, the greatest of those challenges is managing the growing ranks of professional and staff employees. As in many businesses, when advisory firms get large enough, usually around the $5 million in annual revenue mark as we see in my client firms, they typically create human resources departments to take most of the employee management burden off the desks of partners.

While these departments can indeed perform many of the mundane tasks required to administer firm employees, they also introduce a level of bureaucracy that many advisors went independent to avoid. Moreover, that bureaucracy can undermine the productivity levels that make independent firms successful.

I’m not dumping on HR departments here. Administrating employees is a real pain, and many owner-advisors quickly realize they’d much rather pay someone else to do it so that they can spend their time working with clients and building their firms. Managing payroll, overseeing benefits, organizing reviews, maintaining employee files, recruiting and researching industry compensation levels are all labor-intensive, time-consuming tasks that are most efficiently and competently done by people who do them regularly. In fact, we recommend that our client firms hire someone to handle these HR functions full-time when they reach 15 or so employees.

With that said, we also recognize that HR departments can also cause problems—when firm owners and other supervisors shift too many of their responsibilities to them.

We’ve found that perhaps the most important job of an owner-advisor is to instill a sense of mission, of purpose, to his or her employees. Great business owners know that the success of their firms depends on the belief of every employee that what they are doing is important, helpful or good for someone, and, in a large or small way, makes the world a better place. In advisory firms, this is relatively easy, as their mission is to help people better manage their finances to send their kids to college, provide healthcare, retire comfortably and, hopefully, provide for grandchildren and/or other dependents. Each employee’s role in providing these services makes them important, too.

We’ve also found that he best person to convey this sense of mission is the firm owner, or owners. They know better than anyone why they founded their firm, and the importance of the services they provide to their clients. We believe an essential part of an owner-advisor’s job is to prepare every employee to succeed by instilling them with this sense of mission. Unfortunately, once an HR department is created,or an HR person is hired, many owner-advisors delegate (among other things) the preparation of employees to them.

While the HR professionals may be good at their jobs, they aren’t the firm owner—and way more often than not, fail to convey the owner’s passion for client service and sense of mission.

By inserting an HR person between employee and employer, this relationship can be dramatically altered as well. Owner-advisors often begin to see themselves as the “boss,” directing their firm from a distance, rather than as a teacher, coach or mentor to their employees. The difference between how employees see themselves in these two scenarios is dramatic—and so is their level of productivity and loyalty to their firm. Sometimes, they even get confused about who they actually work for, the person they report to and who is ultimately responsible for their advancement and their career.

The solution is for owner-advisors to be proactive about not delegating their responsibilities to their employees. In their desire to be as helpful as possible, HR people are usually willing to take as much off the firm owner’s plate as possible.

To create a truly successful, growing firm, owner-advisors need to delegate the administration of employees to HR, but continue preparing, training and supervising employees—to maximize their happiness, sense of purpose and contributions to their firm. My point is this: don’t believe hiring an HR person is going to relieve you from you job as an owner. It’s your job to still mentor, coach, guide and build the next generation in your firm.